Chinese Real Estate Firms Pressured With Pending Wage Dues and Bond Payments

By Jonathan Walker | December 27, 2021
Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
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Roughly 1.1 trillion yuan worth of unpaid dues in the real estate sector comes due before January-end. (Image: pixabay / CC0 1.0)

Property developers in China are facing a tough time financially. Many are unable to pay their suppliers and contractors, putting existing and future projects in limbo. Some are not in a position to pay off debts or interest payments. 

People also seem to be wary of investing in real estate under the current circumstances, thus lowering sales and revenues of real estate companies. To worsen the situation, these firms have a massive debt in the form of unpaid wages to pay off in the coming weeks.

According to analysts at Nomura, the Chinese construction industry usually pays the yearly compensation of a majority of migrant workers just before the end of the Chinese Lunar New Year. Such deferred wages typically make up roughly two-thirds of a migrant worker’s annual pay. 

The upcoming Lunar New Year falls on Jan. 31, 2022, and the construction industry is expected to pay around 1.1 trillion yuan ($170 billion) in deferred wages to its workers.

“Failing to pay deferred wages could be severely punished by both the central government and related local governments… There is tremendous reputational risk for those developers and constructors that could not pay deferred wages in a timely manner, especially if social protests are triggered,” the analysts stated

Beijing is consistently emphasizing maintaining the stability of the economy, something which will be at risk if the migrant workers employed in the construction industry are not paid on time.

The burden of bond payments due in the coming months also weighs heavily on numerous Chinese real estate firms. In the first quarter of next year, Chinese property developers have to pay $19.8 billion in maturing offshore dollar-denominated bonds, which is almost double the $10.2 billion bond maturities in the fourth quarter of 2021. In the second quarter of next year, $18.5 billion worth of bonds will mature.

In addition to big players like Evergrande, which owes over $300 billion in debts, smaller real estate firms like Fantasia, Modern Land, Sinic Holdings, Fortune Land, and Shimao, are also financially struggling. 

Shimao was ranked in the list of the top 20 developers in China last year. But now, the company has gone through multiple canceled apartment deals and its shares and bonds have fallen in value of late. In a filing with the Hong Kong stock exchange, Sinic admitted that it won’t be able to pay an upcoming $250 million debt.

“Having given careful consideration to its liquidity, the Company currently anticipates that it will not have enough financial resources to make payments of the principal and the last installment of interest of the January 2022 Bonds on the Maturity Date and such payments are not expected to be made on the Maturity Date. As such, the Company is currently of the view that an event of default under the terms and conditions of the January 2022 Bonds will likely occur,” Sinic said.

Meanwhile, China is urging its state-owned property companies to help troubled developers buy off their real estate projects. According to a Reuters report, the China Banking and Insurance Regulatory Commission (CBIRC) and the People’s Bank of China (PBOC) have issued a note to financial institutions regarding the matter.

“Regulators are urging Chinese banks to actively provide lending to fund acquisitions of projects owned by cash-strapped developers, and avoid cutting, or withdrawing, loans to these companies… But only the acquisition of real estate projects, rather than acquiring stakes in the struggling developers, would be encouraged,” according to the report.